Cruising Altitude: Recent Episodes
Cruising Altitude
What is up Cruisers?!
Tired of reading? Just click on the play button above and you can hear COO Ethan read this week’s newsletter to you!
Before You Read:
Make sure to follow Cruising Altitude on Twitter @CA30K for more frequent portfolio updates and news. Want to hear what CA writers think about investment ideas and news? Follow CEO Alan @AlanSoclof and COO Ethan @EthanCA30K!
What is Inside?
The Tweet of the Week
Spotlight: Sprouts Farmers Market $SFM
Portfolio Update
Portfolio News- $NVTA
Trivia
Tweets of the Week
Sponsor- 7Investing
😂HUMOR
The Tweet Of The Week
We like to start our newsletter with a not-so-finance-related tweet that is kind-of -finance-related when you take a deeper look.
This week’s Tweet of the Week belongs to Dave Portnoy:
Brilliant and funny observation. What does this have to do with finance?
Portnoy is founder of Barstool Sports, which is owned by portfolio pick Penn National Gaming $PENN
Bruno Mars was preforming at the Grammy’s which was playing on CBS, owned by ViacomCBS $VIAC (Cruising Altitude’s leading stock)
Spotlight time!
🔍SPOTLIGHT
Sprouts Farmers Market
🥬Background
When you think of the next great investment opportunity, your mind probably goes to genetics and cloud computing.
Today, we are asking you to replace these thoughts with Brussel sprouts and spinach!
Yes. You read that right. Today’s spotlight piece will be on Sprouts Farmers Market $SFM— a grocery store chain!
We at CA feel that this is an extraordinary opportunity that allows you to invest in a stock trading at a significant discount to its fundamentals and with strong growth possibilities in the future.
Let us jump right in!
📓The Company
We see Sprouts as a mixture between Whole Foods, Trader Joes, and your local regional grocery store.
Sprouts is looking to give you the classical grocery experience with a farmers’ market vibe. They have the biggest brands and all the organic and natural foods that you could want, all at a great price!
The company currently has 362 stores nationwide, with the largest concentration in California, where there are 208 locations.
Most importantly, consumers love it, and there is demand for more stores nationwide!
In a grocery store brand study (apparently those exist), 70% of consumers that went to Sprouts actively promote their experience. That is 70% not only willing to return, but also willing to share their experience with family and friends!
Powerful.
🏢Financials
Grocery stores are fun, don’t get us wrong. But what really attracts us to $SFM is how discounted the price of the stock is to the fundamentals. Let us break it down:
The market capitalization of $SFM is $2.88 Billion
Revenue has increased nicely from $4.7 Billion to $6.5 Billion from 2017- 2020
Sprouts is trading at only .4x sales
2020 net income was $287 million! Yes, you read that right
From 2016-2019 net income was $124MM, $158MM, $158MM, and $150MM respectively
These guys and gals are a cash generating machine and, for some reason, the market has not taken any notice.
Interestingly, since 2017, the stock is down 18% even though the company has been crushing it.
Why would I invest in a stock that does not go up?
Share buy-backs!
🚙Share Buy Backs
When considering investment options, you should consider the return on your money, of course, and you shouldn’t worry about the market not realizing the value of your stock picks. The reason you shouldn’t worry is that even if the market never realizes it, the company you own is able to reward dividends or buy back existing shares.
Sprouts is doing the latter.
Simply put, buying shares back is when a company takes their excess cash from operations, of which Sprouts has no shortage, and buys shares off of the market.
What this does is decrease the amount of shares outstanding and, therefore, increase the value of each share to the shareholder.
This is very, very good for the shareholder.
Specifically, over the past few years Sprouts has bought back around 40 million shares of the company out of approximately 160 million outstanding! That is around a 25% buyback and they are not even done yet!
They just announced an additional share buy back of around 10% more shares!
📓Growth
Not only is the current valuation as appealing as a perfectly shining Honey Crisp apple, but the future one might be even better.
Sprouts Farmers Market is looking to grow— seriously grow.
Starting in 2022, the company is looking to open about 30 new stores a year! This means the company will increase their store count by about 50%, which also means we could see an additional $3 Billion in revenue by 2025.
The company actually expects the new stores to be more profitable. They are focused on opening stores that are about 20% smaller and therefore 20% cheaper to build.
The company already has a few smaller store examples, and the CEO shared how they are just as profitable.
The best part? The consumer does not even notice the difference!
Additionally, the company is getting modern with their approach to marketing and coupons.
The company is focused on growing a significant social media following that allows them to reach their target customers. They are already up to 273K Instagram followers and growing quickly! Additionally, the company has zero coupon advertisements in newspapers and is focused on building a significant email following with 3 million e-mail addresses.
Here is what management had to say about their increase focus on digital:
“Through our efforts, our customer database grew tremendously in 2020, with customer e-mails growing 50% and downloading of our Sprouts mobile app increasing nearly 60%.”
The company is focusing on data and technology for advertising. We love this!
Lastly, the company has a strong and rapidly growing line of private label products. This is a fantastic sign as privately labeled goods typically have greater profit margins.
📓Wrapping It up
Awesome fundamentals, share buy backs, awesome fundamentals, and a nice growth trajectory! It does not get any better than this.
For a deeper dive into $SFM, check out our first ever YouTube video with the Chit Chat Money guys that we recorded just last night!
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “Some Concerns”
🟥Red= “Big Concerns”
To track our portfolio during the week, click here!
📰NEWS
Portfolio News
When you are a long term, relatively concentrated investor, there will not always be a ton of news on your companies to share!
Therefore, some weeks we will be sprinkling in other portfolio-related media pieces. This week, we have an interview with portfolio pick Invitae’s $NVTA CEO Sean George on CNBC!
🗒️TWITTER
Tweets Of The Week
This is a W.
Weekly Brian Feroldi Appearance!
We at CA hope to help put a couple on your radar!
🎮GAMETIME
Trivia Night!
Question 1 (Easy): What is the name of the automotive company that is merging with the $CCIV SPAC?
Question 2 (Medium): Who runs Ark Investment Management?
Question 3 (Hard): Which company recently announced $25 billion in bond sales?
Answers
Answer 1: Lucid Motors! The star of last week’s Spotlight piece is one of the latest companies to announce they will go public via SPAC. They’re trying to fill the luxury EV market (that is practically non-existent currently) with their first car that will be released later this year, the Lucid Air.
Answer 2: Cathie Wood! Cathie Wood’s five actively managed ETFs focus on a range of topics such as genomics, fintech, and autonomous technology. The flagship ETF, ARK Innovation $ARKK had an amazing 2020, riding on popular companies such as Tesla $TSLA, Square $SQ, and our very own Teladoc Health $TDOC. While her funds have struggled early this year, Wood remains positive and continues to share her ETFs’ investment strategies (very cool—transparency is in right now).
Answer 3: Verizon $VZ! That’s right, the nation’s largest, most reliable (wow these commercials really do stick in your head) cellular communications provider will be taking on a lot of debt (and I thought my student loans were expensive). The company is doing this to finance the expansion of its 5G network. Verizon recently won more than 50% of airwaves offered by the FCC in an auction, spending more than $54 billion to do so.
🤝PARTNER!
7Investing!
This week’s newsletter is presented by 7Investing. 7Investing is a professional stock advisory service led by 7 skilled and experienced investors. The company provides their 7 top stock picks on the first Monday of every month.
Every Monday, Wednesday, and Friday, 7Investing has a live one hour show called “7Investing Now” where they break down finance news, specific stocks, and answer all of your questions. It is awesome!
To check out the 7Investing website and learn more about the company, click here!
Thanks for Cruising with us! Follow us on Twitter and subscribe to get the newsletter delivered straight to your inbox.
-The Cruising Altitude Team
Disclaimer: Cruising Altitude (CA) is not a professional financial service. All materials released from Cruising Altitude are for educational and entertainment purposes. CA is not a replacement for a professional's opinion. Members of Cruising Altitude might have positions in the equities in the Cruising Altitude Portfolio or mentioned in the newsletter.
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cruisingaltitude.substack.com
What is up Cruisers?!
Tired of reading? Just click on the play button above and you can hear CEO Alan read this week’s newsletter to you!
What is Inside?
The Tweet of the Week
Spotlight: Lucid Motors $CCIV
Portfolio Update
Portfolio News
Trivia
Tweets of the Week
Sponsor- 7Investing
😂HUMOR
The Tweet Of The Week
This week we are starting things a little bit differently with our “Tweet Of The Week!” Check it out:
This is brilliant and funny! But does this have anything to do with stocks? Well, not everything we share has to be about the stock market but this tweet actually is!
How? More to come in the “Portfolio News” section.
Spotlight time!
🔍SPOTLIGHT
Lucid Motors
🚘Background
“The best companies to invest in are SPAC’s trading at 580% premiums with a multi-billion dollar valuation and no revenue.” -Warren Buffett
Kidding! Warren Buffett never said this and never would. This sounds more like something a retail investor would say looking to make a quick buck.
A company that once fit the criteria of our fake Warren Buffett quote was the SPAC $CCIV.
When $CCIV was rumored to be going public with Lucid Motors, the shell company’s stock price ballooned from a $10 valuation to a peak of $64.86 on February 18th- a 548% rise based simply on rumors that they were merging.
So, what the heck is Lucid Motors and why were people so excited about it?
🏢Company
Lucid Motors is looking to become the first seller of high-end luxury EV—they want to be the Audi, BMW, or Mercedes of EV.
Words are one thing. Actions are another. Can they do it?
We at CA think that Lucid will be a successful company and we have five reasons why:
Thematic Growth
As any Cruiser knows, one of our favorite things to look for in a company is whether the industry in which they operate is growing. The theme of “Electric Vehicles” is exploding!
The great Cathie Wood of ARK Invest shared that ARK expects the EV market worldwide to compound at an 82% annualized rate over the next 5 years. That is as explosive as it gets.
The Beauty
Their first car, the Lucid Air, is simply beautiful.⬇️⬇️⬇️
The Battery
So much of the success of EV companies relies on having a battery that charges quickly and will last for a long time. Lucid Motors claims to have just that.
Lucid is boasting a best-in-class 20 minute charge that will power your drive for 300 miles.
Apple—Can you take some notes from Lucid on how to charge things faster? Thanks in advance.
The Management
A principle that Cruising Altitude often stresses is the importance of the executives running the company that we are analyzing. As investors, you have very minimal, if any, impact on day-to-day operations. An investment in a company is an investment in the management.
Lucid Motors has an experienced management team:
CEO—Peter Rawilson, the former head of vehicle engineering at Tesla
VP of Design—Derek Jenkins, former Director of Design at Mazda
VP of Finance—Michael Smuts, who spent over 25 years at Ford
The Demand
Arguably the most important part of the Lucid “as a successful company” thesis is that there is significant demand for the product.
Lucid CEO Peter Rawilson recently shared that the demand for the “Lucid Air” has been “overwhelming.”
Having overwhelming demands in life is not so good.
However, overwhelming demand for your product is very, very good.
💵Investment
Valuation matters. Just because a company is a good company or has a chance to be a good company does not mean it is a good investment.
The stock is currently trading at $25 a share. Therefore, it is trading at a 150% premium to its IPO @ $10.
Lucid announced that the company would be going public at an enterprise value of $11.75 billion. We @ CA think that even the $11.75 billion price tag is hefty. Why?
No revenue currently (and they’ve been in business since 2007)
Threat of current legacy luxury car companies entering “EV Wars”
Only 23% gross margins in 2026! (these tiny PROJECTED margins give very little wiggle room)
“The Unknown”— for a pre revenue company, so much can happen both to the company and to the industry that we just cannot see
But remember, currently the company is trading @ $25 a share, representing a $29 billion valuation.
Yikes!
🚙Ford Motors
To drive our thesis home just a little further (pun most definitely intended) let us look at Ford Motors:
$127 Billion in 2020 revenue
4.2 million cars sold in 2020
Making a significant push into Electric Vehicles
Has over 115 year history and reputation
Ford is trading at a $58 Billion valuation- only $30 Billion (approximately) more than $CCIV. Is Ford undervalued? Who knows. Maybe we will tackle that question another time (we probably won’t because that sounds a little boring). Is $CCIV overvalued? That is for you to decide, but we at CA think it is a little too hot.
📓Final Note
Lucid Motors could be a great company but at this point it does not appear to be a great stock (at least not yet).
Warren Buffett always shares how investing is like baseball where you can wait for your pitch. The beauty of investing is you can watch as many pitches go by as you want! There is no three strikes, you’re out.
This does not look like a home run pitch, so we at CA are going to kick back and wait for the next one that does!
Enjoy our thoughts on $CCIV? Check out our first stock-focused podcast by CA executives CIO Ryan & COO Ethan where we go deeper into the EV market and all things $CCIV. Click Here to listen!
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “Some Concerns”
🟥Red= “Big Concerns”
To track our portfolio during the week, click here!
📰NEWS
Portfolio News
Portfolio News
☕ Spilling Tea. Oprah Winfrey’s interview of Prince Harry and Megan Markle, aired exclusively on CBS, drew 17.1 million viewers on Sunday night. The stunning turnout sent $VIAC soaring to open the week, as the stock rose as much as 13% on Monday. We think it is crazy that the stock flew based on a night of viewership numbers, but hey, we will take it.
🎰 $PENNsylvania. $PENN’s Barstool Sportsbook posted the 3rd largest handle in Pennsylvania betting markets for the month of January. Following the success it had last December, Barstool brought in over $1 million in revenue on a $65 million handle. The revenue was lower than usual for Barstool Sportsbook. We are not concerned but it is something we will keep an eye on!
🏌️ Foooore. $ELY finally completed its merger with Topgolf after shareholders voted last week to approve the transaction. What did Callaway’s CEO Chip Brewer (who we wrote about here) have to say? "Callaway and Topgolf are just better together." We wholeheartedly agree!
🧬Anotha one. $NVTA announced that it will partner with medical solutions firm Roche to deliver no cost testing to people in Central America and the Caribbean who are suspected of having spinal muscular atrophy (SMA). This deal is good for Invitae and the world, which is why we can’t stop smiling.
🎮GAMETIME
Trivia Night!
Question 1 (Easy): What services does Fastly $FSLY provide?
Question 2 (Medium): What does NFT stand for?
Question 3 (Hard): 47% of people reported that COVID-19 is negatively impacting which aspect of their life?
Answer
Answer 1: Edge Cloud Computing! If you read last week’s edition, you knew this! In case you need a refresher, cloud computing is the process of computers sharing and retrieving data (information) from a cloud database that is accessible anywhere where you have internet access. The “edge” refers to the process of transferring data from the cloud to the consumer’s device in a way that maximizes the speed of the user’s experience.
Answer 2: Non-Fungible Token! Let’s break this down word-by-word. “Non” means non. “Fungible,” as in can be exchanged with an identical item. “Token,” as in an asset or indication of ownership. Putting this all together, NFTs are unique items, like online trading cards or works of art, that are protected by blockchain such that only one individual on the internet can posses any one NFT (making each one unique, and in some cases, very valuable). Currently, some NFTs are being exchanged for thousands or millions of dollars on website such as NBA Top Shot.
Answer 3: Mental Health. While COVID-19 has taken hundreds of thousands of lives, it has also greatly affected even those who have not been infected. That’s why the services offered by $TDOC & $HEC are so important. Feel free to check $TDOC’s out here.
🗒️TWITTER
Tweets Of The Week
Oh Warren…
GenZ listen up!
“Wait. You don’t have a webcam in your forest”
🤝PARTNER!
7Investing!
This week’s newsletter is presented by 7Investing. 7Investing is a professional stock advisory service led by 7 skilled and experienced investors. The company provides their 7 top stock picks on the first Monday of every month.
Every Monday, Wednesday, and Friday, 7Investing has a live one hour show called “7Investing Now” where they breakdown finance news, specific stocks, and answer all of your questions. It is awesome!
Our Founder & CEO Alan will have a guest appearance on 7Investing Now this Friday! To check out the 7Investing website and learn more about the company, click here!
Thanks for Cruising with us! Follow us on Twitter and subscribe to get the newsletter delivered straight to your inbox.
-The Cruising Altitude Team
Disclaimer: Cruising Altitude (CA) is not a professional financial service. All materials released from Cruising Altitude are for educational and entertainment purposes. CA is not a replacement for a professional's opinion
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cruisingaltitude.substack.com
What is up Cruisers?!
Tired of reading? Just click on the play button above and you can hear COO Ethan read this week’s newsletter to you!
What is Inside?
Spotlight: Fastly $FSLY
Portfolio Update
Portfolio News
NEW! Trivia
NEW! Tweets of the Week
NEW! Sponsor
🔍SPOTLIGHT
Fastly
💵Earnings
Cruising Altitude’s portfolio pick Fastly $FSLY released their earnings a couple of weeks ago. The often shortsighted Mr. Market thought the earnings were rough as the stock has dropped 27%. The long-term Cruising Altitude minds think that they were very encouraging. First- Check out the numbers:
Q4 Revenue: $82 million (2020) vs. $58 million (2019)
A 40% increase from 2019 to 2020
Q4 Net Gain (Loss): ($46 million) (2020) vs. ($14 million) (2019)
A 228% decrease from 2019 to 2020
🔑Key Takeaway: Revenue increased significantly but profit decreased dramatically.
With a smaller growth company like $FSLY, profitability is not a priority for management. Quarterly revenue growth isn’t even the priority. The priority is the long-term trajectory of the company and whether or not they are poised for explosive growth in the long-run.
Shoot. We just realized we have not even explained what $FSLY is! Before sharing why we think this company is poised for EXPLOSIVE growth, let us share some background information!
🤚Background
Normally, living on the edge is dangerous, but for $FSLY, this is where they thrive. Fastly is a company that excels at “edge cloud computing.” Cloud computing is the process of computers sharing and retrieving data (information) from a cloud database that is accessible anywhere where you have internet access.
The “edge” refers to the process of transferring data from the cloud to the consumer’s device in a way that maximizes the speed of the user’s experience. Big companies pay big bucks for this technology. Unlike CA, tech companies expect results very quickly!
A little confused? That’s okay. We sometimes get confused too with all the tech stuff. Here is what you do need to know. Fastly has some of the best technology in the world. Just check out some of their clients:
Amazon
Shopify
Etsy
Buzzfeed
That’s a loaded list! These Fortune 500 companies all rely on Fastly to retrieve their data from servers and deliver it fast...really fast.
🔐Key Metrics
Check out some of these key metrics that were shared in the Q4 earnings report:
Dollar-Based Net Expansion Rate (DBNER)- This ratio measures the change in revenue from existing customers over a twelve-month period:
DBNER (Q4) = 143% (really really really good)
Enterprise Count- Number of customers with $25 million in revenue, or who are publicly traded:
Increased to 324 in Q4 from 313 in Q3
Enterprise Customer Spend- The average amount that enterprise customers spent on Fastly’s services during the quarter:
Increased to $782,000 in Q4 from $753,000 in Q3
It is truly phenomenal that Fastly was able to have such strong enterprise growth during this quarter. This past year has been a time when corporations are looking to cut costs- not take on more expensive technologies like Fastly. This cements Fastly’s ability to perform in a market consisting of the most adverse conditions.
Fastly also just appointed a Chief Revenue Officer in Brett Shirk who is coming on board to bring over 25 years of cloud-based company experience. Fastly now has their man to target additional enterprise customers which is a fantastic sign for investors.
🏀Takeover?
Remember we mentioned that Amazon $AMZN is a client of Fastly? This is fascinating because Amazon has their own edge cloud computing technology called “CloudFront.” One might think that a company the size of Amazon would use their own platform, but you’d be wrong. For their most prized possession, Amazon.com, the company uses Fastly services. The tech is just that good.
Fastly’s current market capitalization is $7.8 billion. Amazon has $84 billion in cash on their balance sheet and pockets billions of dollars a year. They could potentially buyout Fastly with relative ease.
Remember our good friends at 7Investing? Their CEO Simon Erickson shared a bold prediction that Fastly will be bought out by Amazon this year. He called this a reckless prediction but we at CA think he could be onto something.
Final Takeaway
Why is the stock market such a beautiful place? Because it gives you the opportunity to buy stakes in some of the greatest growth companies (which can also be subject to significant volatility). However, if you are able to maintain perspective, go in with the mindset expecting volatility, you can reap serious rewards.
If you are able to digest the volatility, you might find yourself jumping up and down fastly- because your brokerage account might be looking pretty good.
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “Some Concerns”
🟥Red= “Big Concerns”
📰NEWS
Portfolio News
💵 Redemption. ViacomCBS $VIAC announced that it would redeem all of its roughly $2 billion of senior notes. Basically this means they are paying down their debt which is always good! What we don’t know is how ViacomCBS paid it down (either cash or additional debt). Regardless, CA does not see a liquidity issue.
☘️ Third Time’s the Charm. After breaking into the Michigan and Pennsylvania markets with immense success, Barstool Sportsbook will soon enter the Illinois betting market- possibly before NCAA March Madness. Barstool Sportsbook, owned by $PENN subsidiary Barstool Sports, has had incredible success with young, mobile-focused betters and will look to continue their achievements in Illinois.
🏦 Stocks and Notes. Portfolio pick Fastly $FSLY (see Spotlight piece) announced that it would issue $750 million in notes in a private offering, taking advantage of the low interest rate market. Fastly now has a little more cash on the books (which is always good) and puts them in a position to acquire another tangential company if opportunity knocks.
🖊️ Officially Official. Yesterday, $ELY shareholders officially casted their vote on whether to approve the acquisition of Topgolf. The merger is supposed to be very beneficial for $ELY. We’ve previously written about why we think this is a smart move here.
🎮GAMETIME
Trivia Night!
This week we are introducing a NEW SECTION where we ask you a trivia question about our portfolio picks! Don’t worry- no pressure to get it right! You win just for playing!
Question 1 (Easy): Which portfolio pick of Cruising Altitude provides psychotherapy by using an innovative and disruptive telemedicine technology?
Question 2 (Medium): Who is the CEO of Barstool Sports?
Question 3 (Hard): What are the two main types of genetic tests done in the Genomics industry?
Answer
Answer 1: Talkspace. The one SPAC that we have in our portfolio. We are pretty against SPACs in general as they can be risky but when opportunity knocks, we listen.
Answer 2: Erika Nardini! Be honest? Did you say Dave Portnoy. That is a good guess but he actually handed the business duties over to Erika Nardini so he could focus on doing what he does best. Being Dave.
Answer 3: Somatic and Germline. Somatic tests are tests done on cancer cells while Germline tests are done on healthy cells- so everything else! Fun fact- $NVTA recently acquired a company called ArcherDx that can track the quality of cancer treatment in between treatments using Somatic tests to help doctors and patients understand the best treatment plan in real time! Science is cool!
Thanks for playing and we hope you had some fun and learned some things in the process!
🗒️TWITTER
Tweets Of The Week
“Ya! Who does this Munger guy even think he is!”
Coincidence?
Brian Feroldi.
🤝PARTNER!
Supur!
We are very excited to have our first corporate sponsor! Today it is our good friends at Supur!
Supur is a social impact consultancy focused on helping startups & small businesses make money doing good. They develop authentic social impact programs and harness the power of purpose to elevate brand value, boost online sales & traffic, gain publicity, and engage employees.
Fastly, the star of this week’s spotlight piece, recently incorporated a social impact component to the business by joining the “Virtual Volunteering Initiative” as well as the “1% movement.” Supur could help your company find their perfect social impact initiative and improve your bottom line in the process just like with Fastly!
Interested to hear more how your company can benefit from Supur? Click here for more information!
Thanks for Cruising with us! Follow us on Twitter and subscribe to get the newsletter delivered straight to your inbox.
-The Cruising Altitude Team
Disclaimer: Cruising Altitude (CA) is not a professional financial service. All materials released from Cruising Altitude are for educational and entertainment purposes. CA is not a replacement for a professional's opinion
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cruisingaltitude.substack.com
What is up Cruisers?!
We hope everyone had a great week and we could not be more excited for this week’s issue! Tired of reading? Just click on the play button above and you can hear CEO Alan read this week’s newsletter to you!
Let us jump right in!
🔍SPOTLIGHT
ViacomCBS- The Streaming Company
🎦Setting The Stage
Anyone that loves sports knows that when reflecting on a big game, it is clear that there was one moment or one play where the momentum really changed. Sometimes you know it in the moment. Sometimes only after the game is over does it become clear.
This can happen in investing too with a game changing acquisition, a strategic partnership, or the hiring of a new executive.
Yesterday, ViacomCBS $VIAC, Cruising Altitude Portfolio Pick, announced their fourth quarter earnings (they were good) but the real story was their “Streaming Event.” This event marked the official beginning of a new era at ViacomCBS.
Right at the beginning of the event, there was a pivotal moment. A moment that we at CA think will be reflected on as the moment where the momentum of ViacomCBS truly shifted from a legacy media conglomerate (big word) to a streaming company that can, and WILL, compete with Netflix.
Sherri Redstone, ViacomCBS Executive Chairman and daughter of the recently passed Media Mogul Sumner Redstone, former Executive Chairman of ViacomCBS, opened the event with this statement:
“This is not your father’s Viacom. This is not my father’s Viacom either.”
Sherri Redstone stood up there as the only one on the stage with the whole financial world watching (well at least the media financial world), looked into the camera, and said, “This is my company now, I am going to create my own legacy, and I am so confident in this that I now own 80% of the company.”
Powerful. Now that we have set the stage, let us jump into “the show,” which in this case is Paramount+.
📺Paramount+
The flagship streaming platform for ViacomCBS will be Paramount+ and the service sounds remarkable. As we are sure you all know from Super Bowl ads, Paramount+ is the only streaming service that has “Live Sports, Breaking News, and a Mountain of Entertainment.” Let us share some more details:
Live Sports- P+ will be home to the NFL, SEC Football, NCAA March Madness, UEFA Champions League, PGA Tour Golf, and so much more
Breaking News- Live news including local CBS affiliate channels, National CBS News, and so much more
A Mountain of Entertainment- A really really tall mountain of entertainment that we will need to start a new paragraph for
⛰️Mountain of Entertainment
There will be a lot of really good stuff including:
36 new original series including a new Star Trek, two Yellowstone spinoffs, iCarly reboot, Avatar the Last Airbender, a series based off the videogame Halo, and so much more
A new reality TV show every month including: Love Island USA, The Real World, The Challenge, and so much more
Movies- There are a couple movies that will be included on the launch of the service like SpongeBob on The Run, but the coolest movie related feature is that 30-45 days after the release of a Blockbuster Paramount Film movie, it will be available on the platform. Examples include TopGun Maverick and a Silent Place II.
For a full list of the content click here.
🔢The Numbers
ViacomCBS expects to see explosive growth in streaming revenue and subscribers. When looking specifically at paid/premium services (Paramount+, BET+, Showtime OTT) $VIAC expects:
65-75 million paid subscribers in 2024 compared to 30 million in 2020
$7 billion in streaming revenue in 2024 compared to $2.8 Billion in 2020
For PlutoTV, the Free Ad-Supported Television (FAST) service, which is a “rocket ship” in the words of CEO Bob Bakish, we can expect:
100-120 million Monthly Active Users (MAUs) in 2024 compared to 43 million in 2020
There was not a specific 2024 revenue estimate given but Bakish shared that they expect it to be a $1 billion business and not stop there. That is pretty good for an asset that they paid $340 million for!
🎁Wrapping It Up
When it comes to ViacomCBS, Cruising Altitude can talk about it all day. There is so so so much that we left out and we will likely be doing a deep dive on $VIAC via podcast in the coming weeks!
If you couldn’t tell, we still believe in the ViacomCBS thesis. We actually believe in it even more than we did when we added the stock a few months back. Just think about this: $VIAC is trading at 1.3x sales (like a legacy media company). If the company starts trading like a streaming company like Netflix $NFLX (10x sales) watch out!
$VIAC To The Moon!
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “Some Concerns”
🟥Red= “Big Concerns”
As always, for live updates click here!
🎙️PODCAST!
Brian Feroldi & CEO Alan!
This week, CEO Alan interviewed Financial Twitter superstar Brian Feroldi! Brian is a writer at the Motley Fool and has a following of over 90,000 individuals on Twitter. On the podcast, which is just 15 minutes, Brian shares his thoughts on the current market environment, lessons he would share with his 20 year old self, and much much more!
Click here for the full show!
📰STUFF YOU SHOULD KNOW
This Week
Portfolio News
💰 Earnings Season. This time it was Fastly $FSLY who announced their earnings. Last week, the company reported nearly $291 million in revenue for 2020, a growth of 45% year-over-year. This resulted in a net loss of $95.9 million for the year, but remember this is a growing company. Executives were still proud of the results, especially given the effects of the pandemic and the high potential for growth. We at Cruising Altitude continue to be more bullish than ever. More coming soon.
🏀 Finally Free, Finally Filled. As COVID-19 case numbers continue to drop, New York governor Andrew Cuomo announced that stadiums and arenas could open to fans at 10% capacity. This is great news for $MSGS who, on Tuesday, hosted a Knicks game with fans for the first time since the pandemic started last year.
🎰 Place Your Bets. Topgolf, a subsidiary of our very own $ELY, announced a partnership with $MGM’s gambling network, BetMGM. The partnership is a natural fit that will see the two companies work together to create marketing and promotional materials to reach new audiences. Topgolf guests will also be exposed to an “immersive betting experience” according to BetMGM Chief Revenue Officer Matt Prevost.
💯Insightful Quote
Thanks for Cruising with us! Follow us on Twitter and subscribe to get the newsletter delivered straight to your inbox.
-The Cruising Altitude Team
Disclaimer: Cruising Altitude (CA) is not a professional financial service. All materials released from Cruising Altitude are for educational and entertainment purposes. CA is not a replacement for a professional's opinion
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cruisingaltitude.substack.com
What is up Cruisers?!
We hope everyone had a great week and we could not be more excited for this week’s issue! Tired of reading? Just click on the play button above and you can hear CEO Alan read this week’s newsletter to you!
Let us jump right in!
🔍SPOTLIGHT
The Callaway Way!🏌️♂️🏌️♂️🏌️♂️
💰Earnings
“We got a few really big weeks ahead of us!! It’s earnings season, kid.” - Vince Vaughn, Wedding Crashers.
While we substituted the word “earnings” for “weddings,” the sentiment from this all-time classic remains the same. We are very excited for this time of year.
Our darling stock Callaway Golf $ELY (up over 100% since being added to the portfolio) just released their earnings. The often shortsighted Mr. Market thought the earnings were rough as $ELY dropped 10%. The long-term Cruising Altitude minds think that they were very encouraging. Check out the numbers:
Q4 Revenue: $375 million (2020) vs. $312 million (2019)
A 20% increase from 2019 to 2020
Q4 adjusted EBITDA (think profitability): $-12 million (2020) vs. $-6 million (2019)
A 100% decrease from 2010 to 2020
🔑Key Takeaway: Revenue increased significantly but profit decreased significantly
🚀Huge Growth
Callaway saw “unprecedented demand” for their products including:
+48.5% growth in golf club sales
+14.3% growth in golf ball sales
+8.7% growth in apparel sales
📜Quotes
At CA, we get that our fellow Cruisers lead busy and exciting lives. Maybe you don’t have time for earnings calls. No worries. We gathered some of the most telling quotes from the transcript of the call, so you understand the basic energy Chip brought.
“This increase (in sales) reflects continued unprecedented demand in our golf equipment business.”
“We anticipate that our continued brand momentum, increased demand for golf equipment… will continue into 2021.” (For long-term investors, it is always good news that the future is bright!)
“Post-COVID, we continue to expect our apparel soft goods segment to grow faster than our golf equipment business, and with that growth to deliver operating leverage enhanced profitability.”
Maybe now you can see why we are so excited about the future!
🙋But What About Profitability?
Alright, CA Nation. What about profitability?
We hear you. Don’t worry. The profitability double bogey has an explanation.
Don’t know if you heard but the world was hit with a crazy pandemic called COVID-19. Companies were forced to make some big changes to survive and Callaway Golf was no exception.
Here are the three reasons that profitability decreased:
Increased operational costs due to COVID
Significant increase in costs of shipping containers and air shipments to meet demand
Proactive inventory reductions
The nice thing is these are all directly correlated to COVID. After 2021, the company is confident these increased costs will go away as the vaccines come our way!
🗒️Final Note
The Callaway long thesis still stands. One important factor to keep in mind is the stock is up over 100% in just a few months. A lot of upside is already baked into the company’s future.
Want more in-depth analysis on Callaway and if it is a little “hot” in the short run? Check out this thread by Cruising Altitude CEO Alan on Twitter- Click here.
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “ Some Concerns”
🟥Red= “ Big Concerns”
As always, for live updates click here!
📸WE ARE FAMOUS!
7Investing & CEO Alan!
This week, CEO Alan hopped on 7Investing Now- an investment show with one of the fastest growing professional investment services in the country! On the show, Alan defended portfolio pick ViacomCBS $VIAC and defended the bullish thesis!
Click here for the full show!
📰STUFF YOU SHOULD KNOW
This Week
General News
🏦 🚫 What Was the Biggest Mistake You’ve Ever Made? Whatever it was, we’re 99% sure it wasn’t as bad as the one made by Citigroup $C. Employees at Citi accidently wired nearly $900 million to lenders instead of making (much smaller) interest payments. While it has recovered about $385 million of that money, a federal judge ruled this week that other recipients of the money don’t have to pay the remaining $500 million back to Citi.
📉 Speaking of Losing Money… Jeff Bezos reclaimed his spot as the richest man in the world after Elon Musk lost about $4.5 billion in paper net worth. Since most of Musk’s wealth is tied to Tesla $TSLA stock, its drop in price this week led to a drop down the billionaire’s list for Musk.
🎤 When He Talks, We Listen. Even though he’s 90 years old, people still listen to Warren Buffett when he talks. Shares of Verizon Communications $VZ and Chevron Corp. $CVX rose this week after Buffett’s Berkshire Hathaway $BRK-B announced it had invested multiple billions of dollars in each of the companies.
📺 The Magic of Disney. In just a short period of time, Disney’s $DIS Disney+ streaming service has amassed 95 million subscribers, almost half that of Netflix $NFLX. In total, between Disney+, ESPN+, and Hulu (all owned by Disney), the company's subscribers are at a whopping 146 million.
📕LEARN
What is Liquidity?
Put simply, liquidity is a measure of how easy it is to convert an asset to cash without affecting its market price. There are two types of liquidity: market and accounting.
Market Liquidity
Market liquidity refers to how transparent and stable the price of an asset is on the open market. For example, the stock market has relatively high liquidity because, for most stocks, it is easy to find a buyer (if you’re selling) or seller (if you’re buying) at an agreed upon price. This is because there is a high volume of trading.
Alternatively, a rare piece of art that is worth millions of dollars would be less liquid because there is not a set marketplace or market price for the asset. So, it would take longer to get cash by selling the piece of art than a stock, therefore stocks are more liquid than art.
Accounting Liquidity
Accounting liquidity refers to the ability of a company to pay off its debts with liquid assets. Two main components of this are cash and cash equivalents, and available revolver. Cash and cash equivalents refers to, as the name suggests, the amount of cash and other highly liquid assets, like short-term government bonds and marketable securities, that a company owns.
You can think of a revolver as a credit card for a company--it is the amount of money available to a company for a short-term loan. Since this amount is pre-approved and can be accessed at almost any time, a revolver is considered a source of liquidity.
Bottom line, the more liquid a company is, the less ‘at risk’ they are of defaulting on their financial obligations.
💯Insightful Quote
Thanks for Cruising with us! Follow us on Twitter and subscribe to get the newsletter delivered straight to your inbox.
-The Cruising Altitude Team
Disclaimer: Cruising Altitude (CA) is not a professional financial service. All materials released from Cruising Altitude are for educational and entertainment purposes. CA is not a replacement for a professional's opinion
This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit cruisingaltitude.substack.com